The numbers don’t lie. Commercial property firms have been saying the Auckland and wider New Zealand markets are bouncing back remarkably quickly post-Covid, and now independent, industry-wide research proves they are right.
The data comes from Re-Leased, a company founded by Tom Wallace in New Zealand in 2013 that now has offices in Napier, London, Birmingham, Denver, New York and Melbourne.
As well as award-winning tenant, landlord and property management apps with automation, design and great user experience at their core, its CREDIA Index collects information from the commercial real estate market in real time.
The software aggregates industry insights such as volumes of rent paid or outstanding, and trends in lease lengths, among many other statistics. Re-Leased believes this means there’s little if any room for opinion or bias to sway its assessment of the market.
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By using data from the industry survey on rent collection – which tracks, in real time, how much rent is paid on-time or, say, 30 days in arrears – Re-Leased’s analysts have been able to provide accurate perspective of the effects of the seven-week national lockdown and later Auckland-only shutters on the commercial real estate industry.
CREDIA research shows that at 1 March last year, 91 per cent of Auckland commercial tenants had paid their rent within a 30-day term (retail sector 86%, office 91%, industrial 95%). Across the rest of New Zealand, the figures were 92 per cent (retail 91%, office 93%, industrial 93%).
On 19 March the borders closed and the national lockdown ran from 25 March to 13 May.
Understandably, rent payments took a hit during that time but perhaps not as much as expected – likely due to Government and landlord support programmes.
On 1 June, Auckland 30-day outstanding rent payments stood at 84 per cent (retail 73%, office 84%, industrial 91%). Around the country, payments also ran at 84 per cent with a slightly different weighting (retail 77%, office 90%, industrial 87%).
Thirty-day credits naturally surged during those seven weeks but quickly returned to usual levels when the country returned to life and work.
Auckland’s shorter second and third lockdowns (30 August-23 September 2020 and 17 February-12 March this year) had negligible effects on rent payments.
CREDIA data from 1 April showed 86 per cent compliance in the region (retail 83%, office 88%, industrial 86%). The rest of New Zealand was running a little behind its February 2020 performance at 84 per cent (retail 90%, office 79%, industrial 82%).
Re-Leased has published these and many other insights in a report, The Future of Commercial Real Estate 2021 - New Zealand, which incorporates CREDIA Index data alongside commentaries from industry leaders such as Meta5 Group, Colliers, PwC Legal and Bayleys.
Re-Leased CEO Tom Wallace says, “After a year like no other for the commercial real estate industry, widespread change is happening across the sector. Our latest CREDIA Index data indicates we are close to pre-pandemic levels in rent collection and landlord subsidies and a return to pre-Covid state is assured.”
Wallace says the report should assist industry professionals to identify trends and opportunities that relate to their business and act on them.
“Our industry is evolving rapidly which creates both risk and opportunity. Now is the time for commercial real estate businesses to take an active and informed role in determining how to recover and grow.”
In the report, Re-Leased CREDIA Product Owner, Caleb Dunn, points out that real-time data has never been so important. Old-school methods carried a significant time lag – by the time the data was collated, processed and published, it was out-of-date.
“However, when Covid ensued, evaluation of the sector’s performance was reframed. As the tenant-landlord environment evolved rapidly, acting with speed became a priority to mitigate as much risk as possible. Property professionals now demanded immediate insights, based on activity from last week as opposed to what the market did last quarter.”
Dunn says on a global scale, New Zealand has fared well in the face of a tumultuous year. Rent collection rates dropped significantly in April and May 2020 during the national lockdown but started to recover from July onwards to a point now where rent collection is close to pre-Covid levels.
Despite the additional lockdowns, Auckland rent collection failed to decrease as dramatically as it did when Covid first appeared in the country. “This points to a relative resilience that the market has now built to a lockdown environment as long as restrictions remain short and temporary.
“Understanding the level of rent reductions and subsidies that landlords were providing to tenants also gave us an important insight into New Zealand’s broader economic state. Initially, landlords were providing extreme levels of support in early 2020, peaking at 14.3 percent of rent credited in May 2020. When the country moved to level 1 in June, landlord assistance dropped sharply in the following months.”
Dunn believes there is now less pressure on landlords to lend a hand, but continued dialogue will be required with tenants who are reluctant to return to ‘normal’ rent payments.
Real-time data about average lease lengths is also an important reflection of confidence in the market. Landlords want to know to what degree tenants are signing new leases, and whether those leases are longer or shorter than before.
“In general, New Zealand commercial property leases shortened throughout 2020 but are now trending upwards. Having said that, shorter leases have been gaining in popularity over the past few years, a trend that has been accelerated by Covid and is likely to continue,” Dunn notes.
CREDIA data over three years from 1 March 2018 to1 March 2021 shows the average length of Auckland commercial property leases has shortened marginally from 40.2 months to 39.1 months, led by the retail sector (retail 54.9 to 48.6, office 26.7 to 34.7, industrial 35.3 to 39.1 months).
The trend is more obvious across the rest of New Zealand, where the average lease has contracted from 42.8 months to 31.6 months. Unlike Auckland, this change has been noticed across all three sectors – retail 58 to 45.2, office 46.9 to 25.5, industrial 23.5 to 20.3 months.
Dunn says, “Traditionally, most commercial landlords and funds measure the strength of their portfolio based on the length of leases that they are securing, which translates to consistent income. However, as the shorter lease length trend takes effect, landlords are reconsidering how they evaluate this measure of success.”
- Article supplied by Re-Leased
